The article reminds us of the way the music industry worked for
many decades: a world of power by those who manage artists and
run record companies.

This power was derived by getting artists to agree to allow these
moguls to negotiate and navigate their career decisions. Of
course, the fans only cared about the artists and their music,
but someone had to make business decisions, negotiate contracts
and approve marketing plans. I don’t begrudge the many successful
music industry executives who built lucrative careers and giant
fortunes from the many good decades of music business success.
They helped shaped the careers of literally hundreds of great
artists.

In surveying the state of the business now, however, many of the
decisions made by these very same executives over the past 12
years have resulted in nothing less than complete failure. The
recorded music business, which used to be largely responsible for
more than 60% of the revenue an artist generated, now brings in
about 9% of an artist's take (this number from Azoff himself).
The recorded music business at about $18 billion worldwide is a
shadow of its year 2000 peak of $40 billion. And I don’t see its
fall stopping any time soon. In fact, I really think the recorded
music business goes pretty close to about $6 billion to $8
billion over the next 5 years. And that’s worldwide.

The story of this decline has been well-chronicled. In fact, the
mistakes of this industry are studied daily by executives in the
movie, book, television and newspaper industries as a recipe to
avoid. (I’m not so sure those execs have quite taken away the
right lessons, as I have posted about many other times.)

There are only two music industry segments in better shape than
recorded music: music publishing and live music. The former
hasn’t declined nearly as much, thanks largely to the increased
use of music in advertising, and, to a much lesser extent,
increased revenue from satellite and internet radio. Live music,
as the NYT article makes perfectly clear, has stayed healthy for
two reasons: (1) the magic of a live show can’t be pirated online
and (2) huge consolidation in venue ownership, promoters and
ticketing has allowed a massive increase in ticket prices. It’s
hard to celebrate this second fact as a revival of an industry.
In fact, I think it is the bellwether of its end.

I agree with Azoff that tickets were underpriced for many years.
Scalpers have always showed us that the market had a curve to it
that was not optimized by, say, two or three ticket price points.
The rise of secondary ticket markets like StubHub showed us that
there were more efficient and orderly ways to maximize profit.

But massive consolidation and monopoly-building usually signals
that there are no other growth opportunities left for a market —
the market participants grow by consolidating and raising prices.
Azoff’s belief that Live Nation’s upside is in selling t-shirts
and fan clubs to the fans sounds like something I heard in 1997
during internet 1.0 days. It’s not only not innovative, it is
precisely the opposite of what fans are looking for from the
music industry.

I think, like many others, that we have been witnessing the
atomization of artistic culture. The Internet gives us far more
choice than the limits imposed upon us by broadcast media. We
know of more bands, we can get tour dates pushed to us, can
sample music long before it is released and we can reserve
tickets well before the show. But we are doing this across many
more artists, spreading our limited disposable income around in
ways we didn’t when we had fewer choices. Nevermind that we are
offered billions of other entertainment choices from video games,
YouTube, Facebook games and even Crowdreel and Bitly.TV.

The future of the business is atomized and decentralized. It is
one where the collective power of the many fans actively engaged
in discovery and sharing have more power than a few senior execs
calling the shots about marketing budgets.

Yes, there will always be superstars, largely gained by taking
those who are bubbling up and pushing them through the mass media
still remaining. But today’s superstars sell a fraction of
records/downloads as the ones from years past.

And yes, there will always be American Idol programming which is
really more about entertainment than it is about creating great
music.

But the new power, in my mind, is granted to the aggregators who
pull together our collective wisdom. The music business today is
blogs, Twitter tweets, Facebook links, the Hype Machine,
TheSixtyOne, Rockwood Music Hall, Pandora and Foursquare.
Honestly, I discover far more music today from hypem.com (an
aggregator of the best music blogs) than I ever will from
the decisions of record execs and promoters. We will continue to
pay Mr. Azoff’s company’s service charges for the privilege of
seeing great live music if and when our favorite artists reach
big arenas. And fewer and fewer artists will. But if you are
going to bank your future on nothing more than raising prices and
selling me more expensive t-shirts, the fall will be mighty
indeed.

Instead, where might today’s execs focus their energy? Providing
tools and assets to empower the many fans willing to do their
marketing work for them. Terry
McBride has articulated many times that the secret to his
artists’ success is by giving fans the music and other goodies to
share with friends, evangelizing their favorite artists.
Shouldn’t the music catalogs be available through a click-wrap
API, paving the way for thousands of new music filters on
hundreds of thousands of web sites? Shouldn’t music be
decentralized? Not free, but just available everywhere,
especially to developers to create more engaging and relevant
online music experiences.

Music needs to become part of the fabric of the web, not an
overlay on top of it. Like I can embed my Twitter stream
anywhere, I need to be able to embed the music driving my life
all over the web too. Not just the song names, the music itself.
I have a need to share it, but I really can’t today. If this
happened, the businesses that could be built on top of it are
quite interesting. The data becomes the value here enabling the
new generation of music programmers to emerge based on the
collective and specific expertise of the masses.

The tech community creating digital media is filled with
forward-looking businesses. In the past three weeks alone we’ve
seen the launch of the iPad, new Twitter APIs, and extended
Facebook Social Graph APIs. As Andy Weissman pointed out to me,
“All, or none of those may work – but they are all
forward-looking in their nature and in how they want users to
experience them. Live Nation is looking backwards.”

I am not arguing that artists should not be paid. But the ways
they build their career, reach an audience, and then ultimately
sell stuff to that audience, is fundamentally being turned upside
down. Ecosystems based on sharing are the future. This is what
the net native generation that is the future audience of all
entertainment businesses know to their core. And Mr. Azoff’s
shouting at business partners and squeezing fans for a few extra
dollars on a ticket isn’t going to change any of this.

David Pakman is a partner at VC firm Venrock in New York.
This post was
originally published on his blog and is re-published here
with permission. Follow David on Twitter at @pakman.